Personal Finance Advice

Plenty of parents open savings account for their kids, especially when relatives send checks instead of wrapped gifts whenever a holiday rolls around.  After all, unless you’re going to cash the check and have your kids pick out some toys, why not plop the money into an account and let the money build up some interest? This is especially true for parents who have very young children.  A three month old baby who receives a check in the mail from Grandma could probably care less about how it is spent.

There is nothing wrong with opening a savings account for your young children as long as you keep a few things in mind:

1.  This isn’t a college fund.  Don’t put money that you intend to use to fund your child’s education into a regular savings account.  You won’t be able to enjoy some of the tax benefits of an actual college savings account, and you probably won’t get as good an interest rate.

2.  Don’t open an account with fees.  Don’t watch the monetary gifts your relatives send wither away into nothing because of monthly fees.  Most banks and credit unions have savings accounts designed for kids that don’t require a very large minimum balance at all in order to stay feeless.  Be sure you know what that minimum balance is and stay above it.

3.  Use the account to teach your child about saving.  Don’t just covertly deposit checks into the account without ever telling your child what you’re doing.  Once your child becomes old enough to have a basic understanding of money, go ahead and explain the process.  Have her help you fill out deposit slips, or at least hand the check over the counter to the teller.  Some financial institutions give stickers or lollipops to kids making deposits, so it’s easy to make a trip to the bank or credit union a fun experience.

4.  Don’t use it for your own savings.  Keep your own savings separate from your child’s savings account.  There are too many tax implications if you start dumping piles of your own money in an account designated for your child.  You will want to make sure that your name is on the account so you can access it, but that doesn’t mean you should use it for your own purposes.

5.  You don’t have to have a savings account for your child.  There is no rule that says you have to have a savings account for your child in order to be a good parent.  As long as you are making an effort to save for your child’s education then there really is no huge need for a savings account when your child is really young and doesn’t really know the difference.  Unless the person sending the check specifies that the money is to go into a savings account you can cash it and buy your child something nice, like a toy or maybe even some diapers.

It would certainly be great for your child to turn 16 and have enough money in a savings account to go buy a car, but on the other hand you want to teach your child about earning money and systematic saving.  It’s up to you whether you save vigorously in a savings account for your child or not, but leave some room for your children to earn and save some money on their own. 

Congratulations.  You just received your very first credit card in the mail, and you are excited beyond belief.  This opens up a whole new world to you: The World of Credit Consumers.  Your first impulse is to run out and give the credit card a try.  You’ll only charge up a little because you just want to try it, and you’ll be sure to pay it all off when the statement comes next month.

Right?

Your first credit card is indeed a reason to celebrate.  This is the beginning of your credit history with revolving accounts, and it means that someone thought you are credit-worthy enough to merit an offer of credit.  It is exciting.  What you may not realize is that the way you handle this first credit card is going to have a huge impact on your credit history for years to come.  You’ll either look back on this as the beginning to your credit history or as a huge mistake that haunts you for many years down the road.

How can you make sure that this exciting moment doesn’t turn into a sour memory? Here are some things you need to know as you join the ever-growing group of people who utilize credit cards on a regular basis:

1.  Use it when you need it.  Your new credit card should not suddenly replace cash or your debit card as your main source of paying for purchases.  Use your card when you need to, but don’t get too liberal with it.

2.  Never, ever pay late.  You need to realize that a late payment not only results in huge fees, but the credit card company can (and probably will) raise your interest rate.  Don’t make this costly mistake.

3.  Don’t flirt with your credit limit.  You don’t want to max your card out.  You also don’t want to get so close to your limit that you don’t have much available credit at all.  This is bad for your personal finances, and bad for your credit score.

4.  It’s like a jar of pickles.  Maybe you’ve heard the saying, “It’s like a jar of pickles…once you get the first one out, the rest come out easily.”  The same can be said for credit cards.  Getting your first credit card may not have been easy, but now that you have one you’re going to get courted by other credit card companies.  Don’t make the mistake of accepting every card you receive a preapproval for.

Now is your chance to prove that you’re an adult.  Can you handle adult responsibility? Don’t allow your first credit card to become the catalyst for years of financial grief.  Instead, let it be the beginning of years of responsible credit usage.

If you have managed to achieve the much sought-after status of Debt Free, whether that means with a mortgage or without, you deserve accolades for a job well done.

Now it’s time to buckle down and maintain your status.

Becoming debt free is not a magical transformation that guarantees you will never have another credit card or loan payment in your life.  In fact, unless you chopped up all your credit cards and swore an oath against ever acquiring debt again there is a really good chance you’re going to fall right back into your old habits and wind up right back where you started: relying on credit to get the things you want.

Becoming debt free probably took a lot of hard work, but staying debt free can also be a constant struggle.  After all, you know how easy it is to get the things you want instantly by using credit. You’re aware of the ease of use associated with credit cards and loans.  Regardless of how much trouble you may have gotten into with credit in the past, it’s hard to forget how simple it is to plop a credit card down on a counter and walk out of a store with something you really want but can’t afford to buy with cash.

This is why you need to make the decision of whether or not “debt free” is going to be a permanent condition, or if you simply consider it a new starting point for a more responsible financial standing.  If your plan is to never get into debt again then you need to close all your credit accounts and never open up another account again.  Why have credit cards if you have sworn to never use them again? It makes no sense.  You might tell yourself that you want to have at least one credit card available for emergencies, but if you are debt free then you can probably build up an impressive emergency fund in a savings account quite quickly.  Why have a credit card for emergencies if you have a sufficient emergency fund in the bank?

Keep your credit accounts open and you’re playing with fire.  This is certainly not to say that everyone who pays off their debts should immediately obliterate their credit cards, but if you truly want to adopt a debt-free lifestyle then you’re going to have to get rid of these accounts.  Otherwise you’re keeping the potential open to start building debt right back up and perhaps wind up where you started: with debt and wanting to get it all paid off.

Debt free is not a permanent condition unless you make it so.